Question

On the first day of the fiscal year, a company issues $58,000, 10%, six-year installment notes that have annual payments of $13,317. The first note payment consists of $5,800 of interest and $7,517 of principal repayment.

a. Journalize the entry to record the issuance of the installment notes.

b. Journalize the first annual note payment. For a compound transaction, if an amount box does not require an entry, leave it blank.

Answer 1

a. Journal entry to record the issuance of the installment notes.

Cash a/c. Dr. $ 58000

To Notes payable a/c $ 58000

( Being issuamce of notes payable on borrow 58000 on first day of fiscal year, borrow amount received so cash Dr and liabilities note payable credit)

b. Journal entry for first annual note payment.

Notes payable a/c Dr. $ 7517

Interest a/c . Dr. $ 5800

To cash a/c . $ 13317

( Being 1st installment paid..as well as installment paid liabilities decrease so note payable Dr..interest exp so Dr..and installment paid outflow of cash so cash credit)